Staples is more resilient than discretionary

Based on a same-store sales growth (SSSG) data trend comparison (see Fig. 2), we conclude that staples-related products have more resilient demand than discretionary items (i.e., fashion, home improvement, etc) due to their inelastic nature, especially under the current economic slowdown. The middle-income class holds their spending for lower-priority needs; in fact, the number of mall visitors kept increasing (see Fig. 7) but those visitors were reluctant to spend money, reflected in Mitra Adiperkasa’s (MAPI IJ, Buy) (one of the biggest mall tenants) sluggish SSSG performance. Even the strong activewear trend demand seemed to subside, explained by a weak MAP Active (MAPA IJ, Buy) (activewear specialty stores) SSSG. Aspirasi Hidup Indonesia (ACES IJ, Buy), Indonesia’s home improvement retailer giant, also gave the same feedback, given a slow SSSG. We expect this trend to continue for the rest of the year, assuming a slowdown in government expenditure persists. Without festive season, 2Q25F onward will be very challenging for discretionary retailers’ sales, in our view. On the other hand, Alfamart (AMRT IJ, Buy) and Alfamidi (MIDI IJ, Buy) could have more stable growth by selling necessities.

In-home consumption outperformed out-of-home  

We have observed the middle-income-class saved more money by consuming more food at home due to cheaper costs. Our chart (see Fig 4) shows that in-home related products have stronger demand than out-of-home. In fact, we saw out-of-home products like ready-to-drink (RTD) flavored beverages suffer a double-digit sales decline in 1Q25 (see Fig. 5); we suspect that consumers shifted to cheaper in-home products such as instant powder drinks. We also note that frozen foods still had very strong demand (see Fig. 6); this was driven not only by the urbanization trend, but some households may have reasoned that buying and eating chicken nuggets would be cheaper than live birds, as they could store the food and split the consumption for a week. Other in-home products like biscuits and seasonings also booked strong growth; we believe this could be due to middle-income-class households’ tendency to save money by having snacking and cooking activities at home together with streaming platform entertainment (i.e., Viu [unlisted], Netflix [NFLX US, Not rated], etc) rather than travelling. All in all, we think companies such as Mayora Indah (MYOR IJ, Buy), Indofood CBP (ICBP IJ, Buy), and Cimory (CMRY IJ, Buy) could be the champions by catering to this ongoing trend.

Top picks: Prefer company with better earnings feasibility

In our view, the market pie for staples and discretionary companies will be stagnant under the current weakening buying power situation; hence, companies with the ability to steal market share and with a more stable margin outlook will deliver more predictable earnings. Therefore, we prefer AMRT as our top pick, given more stable demand for staples related products, the chance to gain more share from general trade (GT), and its substantially lower promotion costs. Our second pick would be MIDI, which we expect will benefit from robust Sulawesi consumption and the absence of Lawson loss. For FMCG, we like ICBP, given its strong affordable products portfolio, big contribution from growing overseas markets, and potential margin recovery on the back of full ASP impact and lower CPO prices in 2Q. Our next pick would be Kalbe Farma (KLBF IJ, Buy) due to its ability to gain market share, especially through consumer health brand transformation; margin wise it should be more resilient backed by better sales mix. We also like Indofood (INDF IJ, Buy) due to its integrated business model (upstream to downstream), allowing it to record stable growth. MYOR remains a must-have long-term stock, in our view, driven by market share expansion in both domestic and export markets, while higher commodity costs are a temporary issue, in our view. We expect CMRY will enjoy strong Kanzler growth (capturing in-home consumption trend), offsetting sluggish dairy performance, not to mention management can adjust their A&P spending to balance higher raw material costs. Sariguna Primatirta (CLEO IJ, Buy) is currently the most expensive stock in our coverage, but in our view, its strong packaged water industry growth, opportunity to steal market share, and cheaper plastics costs will drive earnings growth this year. We also like Mulia Boga Raya (KEJU IJ, Buy), which we believe will be the main beneficiary of downtrading trend from food services business. Lastly, for Erajaya (ERAA IJ, Buy), we think most of the bad news has already been priced into its inexpensive valuation.

On the other hand, we believe discretionary retailers such as MAPI, MAPA, and ACES have high risks under the current economic slowdown. Similar to that, we think more premium FMCG product companies, such asUnilever (UNVR IJ, Reduce), Sidomuncul (SIDO IJ, Buy), Sariroti (ROTI IJ, Buy), and Multi Bintang (MLBI IJ, Buy) possess higher risks as well; hence, we predict potential consensus earnings downgrades going forward (see Fig. 1). We have the same view for Matahari (LPPF IJ, Neutral) and Ramayana (RALS IJ, Reduce) as both companies have no competitive advantages in their industry, in our view.

Fig. 2: Retailer SSSG y-y trend

Fig. 3: Total FMCG firm’s (under our coverage) sales growth trend y-y

Fig. 4: In home (biscuits, frozen food, white bread, instant noodles, seasonings, and instant powder drink) vs out-of-home consumption (RTD flavoured beverages, packaged water, and liquid milk) sales growth trend y-y

Fig. 5: RTD flavoured beverages vs. instant powder drinks sales growth trend y-y

Fig. 6: Biscuits, frozen food, and seasonings sales growth trend y-y

Fig. 7: Indonesia mall traffic growth y-y vs. MAPI SSSG y-y

Fig. 8: FMCG firms average A&P-to-sales ratio

Fig. 9: Instant noodles vs premium bread sales growth trend y-y

Fig. 10: Home and personal care sales growth trend y-y

INVESTMENT RATINGS
A rating of ‘Buy’, indicates that the analyst expects the stock to outperform the Benchmark over the next 12 months. A rating of ‘Neutral’, indicates that the analyst expects the stock to perform in line with the Benchmark over the next 12 months. A rating of ‘Reduce’, indicates that the analyst expects the stock to underperform the Benchmark over the next 12 months. A rating of ‘Suspended’, indicates that the rating, target price, and estimates have been suspended temporarily to comply with applicable regulations and/or firm policies. Securities and/or companies that are labelled as ‘Not Rated’ or ‘No Rating’ are not in regular research coverage. Benchmark is Indonesia Composite Index (‘IDX Composite’). A ‘Target Price’, if discussed, indicates the analyst’s forecast for the share price with a 12-month time horizon, reflecting in part of the analyst’s estimates for the company’s earnings, and may be impeded by general market and macroeconomic trends, and by other risks related to the company or the market in general. 

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Sandy Ham (sandy.ham@verdhana.id)

Jody Wijaya (jody.wijaya@verdhana.id)

Samuel Christian (samuel.christian@verdhana.id)